Determining Conditional Value at Risk (CVaR) for Food Industry Companies’ Stocks Portfolios in the Tehran Stock Market

Abstract

The main objective of this study is determining the value at risk (VaR) and conditional value at risk (CVaR) of food industry companies’ stock portfolios on the Tehran stock market. The application of traditional tools in VaR and CVaR estimations is limited, especially when the returns show extreme and time-varying behavior. Therefore, we applied the DCC-GHARCH-EVT model to capture the tail distribution of portfolio risks and time-varying behavior. In addition, we used the Vine copula to describe the dependence structure between dairy and sugar portfolios’ returns. Based on the simulation method, we measured VaR and CVaR to determine the two portfolios’ risks. Our results show that the returns are dependent and that the two markets experienced extreme events. The sugar portfolio’s returns were more volatile, and extreme losses were more likely than extreme rewards in this portfolio. In addition, the VaR and CVaR results also indicate that the dairy portfolio is less risky as compared to the sugar portfolio.